Strategic Credit Capital Pvt. Ltd. & Ors v. Ratnakar Bank Ltd. &Anr

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 1180/2017& C.M.No.5358/2017 (stay) Reserved on: 25[th] May 2017 Pronounced on: 29[th] May 2017 STRATEGIC CREDIT CAPITAL PVT. LTD. & ORS. ..... Petitioners Through: Mr.P.Chidambaram, Sr.Advocate with Mr.Siddhartha Das, Ms.Astha Nigam, Advocates Versus RATNAKAR BANK LTD. &ANR. ..... Respondents Through: Mr.Ateev Mathur, Advocate with Ms.Jagriti Ahuja, Advocate for RBL.AND+ W.P.(C) 2375/2017& C.M.No.10202/2017 (stay)VEENA SINGH ..... Petitioner Through: Mr.V.Lakshmikumaran, Mr.Tapas Ram Misra, Mr.Saurav Sood, Mr.Shashank Sharma, Mr.Subhashreer, Advocates. Versus DIRECTOR OF INCOME-TAX (INVESTIGATION)-I& ORS. ..... Respondents Through: Mr.Rahul Kaushik, Sr.Standing Counsel for Revenue. Mr.Ateev Mathur, Advocate with W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 1 of 54 CORAM: JUSTICE S.MURALIDHAR JUSTICE CHANDER SHEKHAR JUDGMENT 29.05.2017 % Dr. S. Muralidhar, J.: 1. These two writ petitions under Article 226 of the Constitution of India arise from a common set of facts and seek similar reliefs. They are, accordingly, being disposed of by this common judgment. The parties 2. The eight Petitioners in W.P.(C) No.1180/2017 are all companies: (1) Strategic Credit Capital Pvt. Ltd. („SCCPL‟), (2) Land Energy and Resources Ltd. („LERL‟), (3) Land Industrial and Infrastructure Ltd. („LIIL‟), (4) Participation Finance and Holding India Pvt. Ltd. („PFHIPL‟), (5) Empell Fortitus Pvt. Ltd. („EFPL‟), (6) Lionforge Intertrade Pvt. Ltd. („LIPL‟), (7) Principal Land Reality and Development Pvt. Ltd. („PLRDPL‟), (8) Exsto Foundation Enterprises and Reserves Ltd. („EFERL‟). It is significant that all these 8 Petitioners have the same address –i.e., A-49, Mohan Cooperative Industrial Area, New Delhi 110044. 3. The Respondents in this petition are Ratnakar Bank Ltd. („RBL‟) andthe Income Tax Department („the Department‟) (Respondents 1 and 2 respectively). 4. In W.P.(C) No.2375/2017, the Petitioner is Ms. Veena Singh. The W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 2 of 54 Respondents are the Director of Income Tax (Investigation)-I („DIT‟), Assistant Director of Income Tax (Investigation), Unit 7(3) („ADIT‟), Income Tax Officer (Investigation), Special Cell („ITO‟) and the Bank Manager of RBL (Respondents No. 1 to 4 respectively). Search and survey 5. Both these petitions have been filed as a result of search, seizure and survey that was undertaken under Section 132(1) of the Income Tax Act („the Act‟) by the Department on 11[th] January, 2017 at the residences of Mr.Mohnish Mohan Mukkar at Satbari, New Delhi, Kailash Colony and South Extension, Part-I and Vasant Kunj in New Delhi, and on 4[th] February, 2017 atChembur in Mumbai. A survey under Section 133A of the Act was conducted on 11[th] January, 2017 and 4[th] February, 2017 at Karol Bagh and Rajouri Garden Branches of RBL in Delhi, Kohinoor Magnetic Media Pvt. Ltd. and the 8 Petitioner companies [in W.P.(C) No.1180/2017] at Mohan Cooperative Industrial Estate, New Delhi, Lexis Networks LLP having offices at Barakhamba Road, Connaught Place and Kalkaji, Sahas Financial Services Pvt Ltd., Open source Consulting Pvt. Ltd., Lionforge Fracht Veranstalter Pvt. Ltd, Independent Trustee and Executor Agency India Pvt. Ltd., Kfour Consultancy Pvt. Ltd. The survey was also undertaken at the office premises of Mr.Mukkar and Mr.Venugopal Nair at Chembur Naka and Vikhroli East in Mumbai. 6. The case of the Department is that during search and survey proceedings, incriminating documents and evidences (including digital evidences such as emails, phone data, hard drives etc.) were found and seized. Before W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 3 of 54 6. The case of the Department is that during search and survey proceedings, incriminating documents and evidences (including digital evidences such as emails, phone data, hard drives etc.) were found and seized. Before W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 3 of 54 proceeding to discuss the case of the Department, it is necessary to first discuss the case of the Petitioners. Averments in W.P. (C) 1180 of 2017 7.1 W.P.(C) No.1180 of 2017 which is by 8 Petitioner companies was filed on 8[th] February, 2017 and is supported by an affidavit of Mr.Praveen Pandey, a resident of 547, Saket Court Complex, New Delhi describing himself as the Authorized Representative („AR‟) of all the 8 Petitioners. 7.2The averments in this petition are that survey proceedings were carried –out in respect of 3 companies Lionforge Logistics Pvt. Ltd., Halcyon Asia Business Development Pvt. Ltd.and Halcyon Asia Management Strategies Pvt. Ltd. as well as Mr.Mukkar. The 8 Petitioners state that the they are not named in the survey. In para 5 of the petition,it is averred that “the said entities have no relation to Mr.Mohnish Mohan Mukkar in his personal capacity, and Mr.Mukkar is neither a shareholder nor a Director in the said companies”. It is then averred in para 6 that Mr. Mukkar was subjected to a search on 11[th] January, 2017 pursuant to which a restraint order under Section 132(3) of the Act was issued directing RBL to not release the bank accounts of 16 persons including the 8 Petitioner companies. 7.3 In para 7 of the writ petition, it is averred that certain letters dated 20[th]January, 2017 were written by the Petitioner companies to the Department requesting that the restraint order be lifted. It is then averred that “[i]t was clarified that the said entities had no relation to Mr.Mohnish Mohan Mukkar in his personal capacity and that the said person is neither a shareholder nor a Director in the said companies." W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 4 of 54 7.4 It is submitted that “no action could have been initiated under Section 132(3) without there being any action initiated under Section 132.” It is averred that no liability has been established against the Petitioners with there being no tax demand upon them and that even a Show Cause Notice („SCN‟) has not been issued. 7.5 It is averred in para 9 that on the evening of 7[th] February 2017, the Petitioners came to know through messages from the Bank (RBL) that their accounts had been debited by Rs.37,66,842.50 as per income tax notice and net balance was Re.0. There was another message debiting Rs.7,93,478. Further demand drafts („DDs‟) in favour of the Department were prepared. It is pointed out that on 7[th] February, 2017 itself, the Petitioners through their counsel wrote to RBL requesting it not to honour the DDs. It is stated that the Petitioners owe monies to other entities in respect of the loans availed by the Petitioners and that it was not open to the Department to have debited their accounts. It is averred that the said monies were “proceeds of the loans taken from other entities”. 7.6 In para 11, the Petitioners have listed out the account numbers of the Petitioner companies from which the amounts were debited. Para 12 of the writ petition sets out the grounds. The essence of these grounds is that the action of the Department is arbitrary, illegal and unconstitutional and that on the mere asking of the Department, without issuing an SCN or a demand of assessment being served, debiting the accounts of the Petitioners with a total of Rs.23,14,64,825.30 without instructions was “expropriatory and has no sanction in law”. It is further stated that no opportunity of hearing was W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 5 of 54 7.6 In para 11, the Petitioners have listed out the account numbers of the Petitioner companies from which the amounts were debited. Para 12 of the writ petition sets out the grounds. The essence of these grounds is that the action of the Department is arbitrary, illegal and unconstitutional and that on the mere asking of the Department, without issuing an SCN or a demand of assessment being served, debiting the accounts of the Petitioners with a total of Rs.23,14,64,825.30 without instructions was “expropriatory and has no sanction in law”. It is further stated that no opportunity of hearing was W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 5 of 54 granted to the Petitioners and the impugned actions were “in violation of the principles of natural justice”. It is averred that in the past several days, the representatives of the Petitioners have been attempting to meet the officials of the Department but to no avail. It is averred that the monies belonging to the Petitioners have been expropriated by the Department in “one shot” and “without complying with any semblance of law and procedures”. It is stated that the Petitioners “are engaged in legitimate business, and their entire business activities have been brought to a standstill.” 7.7Accordingly, the main prayers in the W.P.(C) No.1180/2017 are to quash and set aside the impugned actions of the Department and for a direction to RBL to cancel the DDs and re-credit the funds in the accounts of the Petitioners and to direct RBL to not honour the DDs. Interim orders directing RBL not to honour the DDs have been prayed for. 7.8 This writ petition came up for hearing on 9[th] February, 2017. While directing notice to issue in the petitions, an interim order was passed restraining the Department from encashing the DDs until the next date of hearing to the extent of the amounts having been appropriated from the Petitioners‟ accounts. On that date itself, the Reserve Bank of India, Respondent No.3, was deleted from the array of parties. The petition was then adjourned to for 19[th] April, 2017. 7.9 On 19[th] April, 2017, while recording the statement of the counsel for the Respondents that they would be filing their replies by 25[th] April, 2017, the Court directed the Petitioners in their rejoinder to disclose if they had regularly been filing their Income Tax Returns („ITRs‟) and, if so, to enclose W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 6 of 54 copies of the latest ITRs with the rejoinder. Mr.Zoheb Hossain, the learned Senior Standing Counsel in the Department, stated that on 13[th] April, 2017, a representation has been received by the Department from the Petitioners under the proviso to Section 132B of the Act. He stated that the said representation would be examined and appropriate orders would be filed not later than 2 weeks from that date. The Court directed that a copy of the said decision to be placed on record before the next date and adjourned the case to 17[th] May, 2017. The interim orders were directed to continue till the next date. 7.10 On 17[th] May, 2017, the counsel for the Department informed the Court that the above representation of the Petitioners had been disposed of. The counter-affidavits had already been filed by the Department. The Petitioners were permitted to file a rejoinder by the next date. The Court, while directing the interim orders to continue, adjourned the case to 25[th] May, 2017. Stand of RBL 7.10 On 17[th] May, 2017, the counsel for the Department informed the Court that the above representation of the Petitioners had been disposed of. The counter-affidavits had already been filed by the Department. The Petitioners were permitted to file a rejoinder by the next date. The Court, while directing the interim orders to continue, adjourned the case to 25[th] May, 2017. Stand of RBL 8.1 RBL has filed a separate counter-affidavit in W.P. (C) 1180 of 2017 confirming that the companies had opened accounts with it. It is pointed out that the impleadment of RBL was misconceived and unwarranted since the grievance of the Petitioners was against the Department. RBL, without prejudice to the foregoing submissions, stated that “the Petitioner in the writ petition has averred that Mr. Mohnish Mukkar has no concern with the said accounts, which statement/averment is false to the knowledge of the Petitioner. It is submitted that at the time of opening of accounts, the W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 7 of 54 Petitioner had given a categorical declaration that Mr. Mohnish Mukkar is the beneficial owner of the accounts of the Petitioner and now, for the reasons best known to the Petitioner, the Petitioner has made the false averment. Thus, the present writ petition is liable to be dismissed for concealment of material facts.” 8.2 In para 7 of its counter-affidavit (which is a para-wise reply to para 7 of the writ petition), it is stated by RBL that “while opening the accounts by the Petitioners with the Respondent No.1,all the Petitioners have given a declaration that the owner and the beneficiary of the said accounts would be Mr. Mohnish Mukkar. It is further submitted that on 15.05.2017, the Answering Respondent has received a request from the Petitioner Companies to update the status of Beneficial Owner so as to record the name of Master Jeh Mohnish Mukkar. Copy of the request letters received from Petitioner Companies are attached along with the present counter affidavit and marked as Annexure R-5.” The case of the Department in W.P. (C) 1180 of 2017 9.1To turn to the version of the Department as far as W.P.(C) No.1180/2017 is concerned, it is stated at the outset that the Petitioners have suppressed material facts and ought not to be granted any relief. It is pointed out that from the documents seized and statements of persons recorded during the search and seizure and survey operations, it has emerged that “Mr.Mukkar was the key person controlling multiple companies through a complex web of holdings and cross holdings.” According to the Department, this fact was corroborated by the statements recorded on oath by the key associates of Mr. Mukkar, who according to the Department are: W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 8 of 54 (a) Ms.Veena Singh, who is stated to be actively involved in the day-to-day management of various companies controlled by Mr. Mukkar and works closely with him. This, according to the Department, is clear from the seized email backups and phone records. (b) Mr.Venugopal Nair, who is stated to be a Chartered Accountant („CA‟) of the group of companies controlled by Mr. Mukkar. An extract of his statement recorded under Section 131 of the Act on 1[st]February, 2017 and under Section 132(4) of the Act on oath on 4[th]February, 2017 has been enclosed. (c) Mr.Raj Kumar Sehgal who is stated to be the Company Secretary of the group of companies controlled by Mr. Mukkar. (d) Ms.Deepika Bajaj an employee of EFPL (Petitioner No. 5 in W.P. (C) 1180 of 2017) and looked after the administrative matters of various companies registered at A-49, Mohan Cooperative Industrial Area, Delhi. (b) Mr.Venugopal Nair, who is stated to be a Chartered Accountant („CA‟) of the group of companies controlled by Mr. Mukkar. An extract of his statement recorded under Section 131 of the Act on 1[st]February, 2017 and under Section 132(4) of the Act on oath on 4[th]February, 2017 has been enclosed. (c) Mr.Raj Kumar Sehgal who is stated to be the Company Secretary of the group of companies controlled by Mr. Mukkar. (d) Ms.Deepika Bajaj an employee of EFPL (Petitioner No. 5 in W.P. (C) 1180 of 2017) and looked after the administrative matters of various companies registered at A-49, Mohan Cooperative Industrial Area, Delhi. 9.2 It is stated, however, that in his statements made on oath during the search and survey proceedings, Mr. Mukkar gave false and misleading statements by denying that he had no active role in the day-to-day management of the Petitioner companies. It is further stated that during the search and survey proceedings, Mr. Mukkar as well as the other key associates had claimed that the web of companies were ultimately held by Elfington Trusts and/or Independent Trustees and Executors Private Limited (hereinafter referred to collectively as „Trusts‟) which were for the benefit of Mr.Jeh Mukkar, who is the minor son of Mr. Mukkar. However, they had W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 9 of 54 failed to produce any documents to that end (like incorporation of trusts, names and addresses of the Trustees) nor did they reveal where the trusts were located in spite of being given sufficient opportunity and time. 9.3. Thus, it is stated that this delaying tactic was to mislead the Department as during the course of search and on perusal of email records, credible evidence in the hands of the Department indicated that Elfington goes by the name of „Elfington Limited‟ registered in British Virgin Islands. In spite of specifically being asked under oath whether any of his family members held any foreign assets, Mr. Mukkar failed to make any revelations about the existence of a Trust or company or entities in the British Virgin Islands. It is stated that evidence has also been found regarding the existence of various companies in Hong Kong in which Ms.Veena Singh (key associate of Mr. Mukkar) was a Director. Investigations are stated to be underway to establish the ownership and other credentials of these off-shore companies and the implications that may arise from the point of view of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter referred to as „the Black Money Act‟). 9.4 It is stated that the definition of „Beneficial Owner‟ as per Circular No.13 of 2015 issued by Central Board of Direct Taxes („CBDT‟) is that which is provided in Explanations 4 and 5 to Section 139(1) of the Act. In terms thereof, “beneficial owner” in respect of an asset means "an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person”. The Department is stated to be examining the case from the W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 10 of 54 purview of the Black Money Act in the process of initiating necessary proceedings against Mr. Mukkar and others. 9.4 It is stated that the definition of „Beneficial Owner‟ as per Circular No.13 of 2015 issued by Central Board of Direct Taxes („CBDT‟) is that which is provided in Explanations 4 and 5 to Section 139(1) of the Act. In terms thereof, “beneficial owner” in respect of an asset means "an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person”. The Department is stated to be examining the case from the W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 10 of 54 purview of the Black Money Act in the process of initiating necessary proceedings against Mr. Mukkar and others. 9.5 It is further stated in para 4.6.2 of the counter-affidavit in W.P.(C) No.1180 of 2017 that post demonetization there was a cash deposit totalling Rs.13,43,50,000/- in the bank accounts of three of the Petitioner companies viz., LERL (Petitioner No. 2), LIIL (Petitioner No.3) and LIPL (Petitioner No.6) in their accounts at RBL, Karol Bagh Branch. During the course of survey proceedings at RBL, it was discovered that there were more bank accounts including the rest of the Petitioner companies' accounts. Ms.Veena Singh (a key associate of Mr. Mukkar) was the authorized signatory of bank accounts of these eight companies, and Mr.Mukkar and/or Ms.Kiran Shiv Mukkar (mother of Mr. Mukkar) were the beneficial owners. The details received from RBL are set out in para 4.6.2 of the counter-affidavit as Table-5 and enclosed as Annexure R-9 to the counter-affidavit. 9.6The Branch Manager of RBL is supposed to have provided information to the Department that Rule 9(1A) of the Prevention of Money Laundering Rules, 2005 (hereinafter referred to as „PML Rules‟) required every banking company to identify the beneficial owner and to take reasonable steps to verify its identity. It was explained that Rule 9(1A) of the PML Rules, 2005 requires that “every banking company, and financial institution, as the case may be, shall identify the beneficial owner and take all reasonable steps to verify his identity. The term "beneficial owner" has been defined as the natural person who ultimately owns or controls a client and / or the person on whose behalf the transaction is being conducted, and includes a person W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 11 of 54 who exercises ultimate effective control over a juridical person.” It was further explained that the Government of India had specified the procedure for determination of Beneficial Ownership. In terms thereof, (a) where the client is a company, the beneficial owner is “the natural person(s), who, whether acting alone or together, or through one or more juridical person, has a controlling ownership interest or who exercises control through other ”“means. The Explanation thereunder states: For the purpose of this sub- –clause "Controlling ownership interest" means ownership of or entitlement to more than twenty-five percent of shares or capital or profits of the company;"Control" shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements." 9.7 Ms.Veena Singh is supposed to have volunteered during the search and survey proceedings to the Department that a major part of the cash was received from Deccan Chronicle Holdings Limited („DCHL‟) who paid cash in tranches for the services rendered to them by and as per the agreements (September and October 2012) between (PFHIPL) and DCHL for providing services like restructuring plan, introducing them to buyers etc. It was stated by her that the said cash was subsequently extended as advances to other companies for the ongoing transactions. 9.7 Ms.Veena Singh is supposed to have volunteered during the search and survey proceedings to the Department that a major part of the cash was received from Deccan Chronicle Holdings Limited („DCHL‟) who paid cash in tranches for the services rendered to them by and as per the agreements (September and October 2012) between (PFHIPL) and DCHL for providing services like restructuring plan, introducing them to buyers etc. It was stated by her that the said cash was subsequently extended as advances to other companies for the ongoing transactions. 9.8 It was disclosed by Mr. Mukkar in his statement to the Department that the money was received from DCHL. However, neither he nor Ms. Singh could produce any documents in support of this claim. It is explained that in W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 12 of 54 view of the fact that neither Mr. Mukkar nor Ms. Singh or other key associates could produce any documents/book of accounts/evidence during the course of search and survey proceedings that could help verify the nature and source of such huge cash, the accounts of the Petitioner companies were put under restraint under Section 132(3) of the Act on 11[th] January, 2017. 9.9 As regards the Petitioner companies, it is stated that the books of accounts of none of them was found at their registered office address (A-49, Mohan Cooperative Industrial Area). Mr. Mukkar and Ms. Singh stated on oath that the books of accounts were maintained in Mumbai by Mr. Nair and would be made available to the Department. Mr.Nair in his statement under oath under Section 131 of the Act on 1[st] February, 2017 denied that the books of accounts were maintained in Mumbai. This was followed by search and survey operation at the residential and office premises of Mr. Nair in Mumbai where he finally admitted that the books of accounts of all the companies controlled by Mr. Mukkar (including the Petitioner companies registered at A-49, Mohan Cooperative Industrial Estate) were maintained by Mr.Nair at his office in Chembur Naka, Mumbai. The counter-affidavit sets out the relevant portion of the said statement of Mr. Nair. The Department, accordingly, states that there was a wilful and deliberate attempt to prevent the Department from accessing the books of accounts of the Petitioner companies even though sufficient time and opportunity was granted to the Petitioners. 9.10 The counter-affidavit provides a summary of the statement made by Mr. Nair on 18[th] January, 2017 and the submission made through his AR. In W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 13 of 54 this, he states that source of cash totalling Rs.15 crores was received by PFHPL from DCHL. When he next appeared on 24[th] January, 2017 before the Department, the AR of Mr.Nair submitted covering letters stating that Mr. Mukkar was merely an advisor to a company named Halcyon Asia Support Private Limited („Halcyon Asia‟) and played no role in the day-to-day management of either the Petitioner companies or other companies of the group. 9.11 The Department states that the letters of the Petitioner companies requesting lifting of the restraint order was received on 23[rd] January, 2017 and 24[th]January, 2017. These letters also contained 3 undated „Fund Confirmation Letters‟ signed by Mr. Shakti Singh Jadaun, Director of PFHPL certifying that the advance in cash of Rs.7.5 crores, Rs.5 crores and Rs.2.5 crores were extended during the Financial Year („FY‟) 2015-16 to LIIL, LERL and LIPL. It is stated that the ADIT asked the AR to furnish further documents relating to the above transactions involving DCHL and PFHPL and evidence to show that the accounts that were put under restraint were duly disclosed in the books of accounts as well as ITRs. 9.11 The Department states that the letters of the Petitioner companies requesting lifting of the restraint order was received on 23[rd] January, 2017 and 24[th]January, 2017. These letters also contained 3 undated „Fund Confirmation Letters‟ signed by Mr. Shakti Singh Jadaun, Director of PFHPL certifying that the advance in cash of Rs.7.5 crores, Rs.5 crores and Rs.2.5 crores were extended during the Financial Year („FY‟) 2015-16 to LIIL, LERL and LIPL. It is stated that the ADIT asked the AR to furnish further documents relating to the above transactions involving DCHL and PFHPL and evidence to show that the accounts that were put under restraint were duly disclosed in the books of accounts as well as ITRs. 9.12 The Department states that on examination of the request letters for lifting the restraint on the bank accounts, it was observed that the Power of Attorney („PoA‟) that was submitted by the AR of the Petitioner Companies (Kumra Bhati & Co., Chartered Accountants) was given to the AR by Mr.Praveen Kumar Pandey, an advocate, who in turn held the General Power of Attorney („GPA‟) for the 9 companies, which included the 8 –Petitioner companies, on behalf of 2 Directors of these companies Mr. W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 14 of 54 Shakti Singh Jadaun and Mr. Lokesh Kumar Pachauri. Copies of the authorization letters dated 20[th] January, 2017 under Section 288 of the Act issued by Mr. Praveen Kumar Pandey in favour of Kumra Bhatia & Co. has been enclosed to the counter -affidavit as Annexure R-15. 9.13 The Department‟s counter-affidavit then proceeds to list out the names of the Directors of the Petitioner Companies on whose behalf letters were submitted to the Department. It says that Mr. Jadaun, Mr. Pachauri and Ms.Padmavathy are shown to be the Directors of LIIL and LERL, Mr.Jadaun, Mr.Pachauri, Mr.Happy Passi are the Directors of LIPL, Mr. Jadaun and Mr.Ashwani Sehgal are the Directors of EFPL, Mr. Jadaun and Ms.Padmavathy are the Directors of EFERL, Mr. Jadaun and Mr. Pachauri are the Directors of Jemma Consultants and Advisors Pvt. Ltd. („JCAPL‟), Mr. Pachauri and Mr. Sehgal are the Directors of Perpetual Care and Servicing Pvt. Ltd., Mr. Jadaun and Mr. Sehgal are the Directors of PRDPL, and Mr. Jadaun and Ms.Padmavathy are the Directors of SCCPL. 9.14 Since the address mentioned in the PoA for both Mr. Jadaun and Mr. Pachauri was H-II, Madangir, New Delhi, summons under Section 131(1A) of the Act were issued on the above address and field enquiries were also made. This address was found to be incomplete andthe correct address was House No.309, H-II, Madangir, New Delhi. Thereafter, submissions were recorded of both Mr. Pachauri and Mr. Jadaun between 27[th] January, 2017 and 30[th] January, 2017. 9.15 The Department states that as far as Mr.Pachauri was concerned, he was 24 years old, a Class XII pass and he did not know English; he could W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 15 of 54 only sign his name in English; he got his statement recorded in Hindi; he denied signing the PoA on 19[th] January, 2017; did not know the names of the other Directors of the Companies in which he was a Director except Mr. Jadaun who was his childhood friend. He was employed by Mr. Sehgal (the Company Secretary for the Petitioner companies) for Rs.12,000/- per month for signing as Director for various companies. He was not aware of the names of these companies; did not know either Mr.Praveen Kumar Pandey or Kumra Bhati & Co. (the AR) and denied having signed the PoA. “In fact he asserted that his signature carried on the document appeared to be forged.”; he was not aware of the knowledge of the request letters for lifting of the restraint and was not aware of the lifting of restraint on the bank accounts of the companies of which he was a Director. He had no information of the cash deposited in these Companies‟ bank accounts. 9.16 As far as Mr. Jadaun is concerned, he was 22 years old, he, too, was employed by Mr. Raj Kumar Sehgal at Rs.12,000/- per month to sign as Director for various companies. He, too, could only sign his name in English and denied his working understanding of the language. He got a statement recorded in Hindi. He, too, did not know activities and operation details of the companies; denied signing the PoA on 19[th] January, 2017; did not know the other Directors of the Company except Mr. Pachauri who was his childhood friend. He also did not know either Mr. Praveen Kumar Pandey or Kumra Bhatia & Co. and was not aware of the bank accounts in the name of the companies in RBL. He denied having knowledge of the „Fund Confirmation Letters‟ bearing his signatures which were submitted to the Department on behalf of the three Petitioner Companies. He denied having W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 16 of 54 knowledge of such huge amounts of cash deposited in their accounts. 9.17The statement of Mr. Ashwani Sehgal (a driver by profession who was a Director in three of the companies) and of Mr. Happy Passi were recorded. It emerged that each of them was employed by Mr. Raj Kumar Sehgal for Rs.6,000/- per month to sign as Director of various companies. Their knowledge of the affairs of the companies was no different from that of Mr. Pachauri and Mr.Jadaun. It is stated that efforts were made by the Department to find out about Ms. Padmavathy, who was not found at her declared address. Her current address was not known to any of her colleagues. 9.18 The counter-affidavit of the Department further refers to the fact that on 3[rd] February, 2017, Mr. Nair appeared and filed belated ITRs for seven of the Petitioner companies. On analysing the data base of the Department it was revealed that the said Petitioner companies had defaulted in filing the ITRs. They had filed them only after the search and survey was conducted by the Department. The details of the filing of the ITRs of the 8 Petitioner companies for the AY 2015-16 onwards have been set out as Table No. 7 in the counter-affidavit. The gross total income of 5 of the companies is Rs.0. PRDPL is shown to have filed no returns. PFHIPL filed a return for AYs 2015-16 and 2016-17 on 14[th] February, 2017 disclosing a grand income of Rs. 2,06,46,794 and SCCPL on 2[nd] February, 2017 for the aforementioned AYs showing a total income of Rs.20,29,344 and Rs.16,32,462 respectively. From the Ministry of Corporate Affairs database it was revealed that the Petitioner companies had also defaulted on a regular basis in filing their W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 17 of 54 mandatory forms and details under the Companies Act, 2013. 9.19 It is stated by the Department that pursuant to the summons issued under Section 131(1A) of the Act to DCHL on 25[th] January, 2017, it informed the Department by a letter dated 2[nd] February, 2017 that from 3[rd]October, 2012 till 22[nd] August, 2013 Rs.10.50 crores (net of TDS) was paid to PFHIPL through bank transfers and no cash payment was made till the date of submission of the reply to the Department. W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 17 of 54 mandatory forms and details under the Companies Act, 2013. 9.19 It is stated by the Department that pursuant to the summons issued under Section 131(1A) of the Act to DCHL on 25[th] January, 2017, it informed the Department by a letter dated 2[nd] February, 2017 that from 3[rd]October, 2012 till 22[nd] August, 2013 Rs.10.50 crores (net of TDS) was paid to PFHIPL through bank transfers and no cash payment was made till the date of submission of the reply to the Department. 9.20 The Department states that the bank records at RBL showed that Mr. Mukkar was the beneficial owner of the bank account of the companies including the Petitioner companies. On the basis of the statements made and evidence gathered, it was sufficiently established that Mr. Mukkar was the key person controlling the companies and their bank accounts at RBL. The Directors of these companies were only dummies and “there is a deliberate attempt to disprove that the real control and management of these companies lies with Mr. Mohnish Mohan Mukkar.” A reference was also made to the amendment to The Benami Transactions (Prohibition) Amendment Act, 2016 and the amended definition of „Benami Transactions‟. It is stated that a separate satisfaction note was drawn and separate warrants were issued against each of the Petitioner companies‟ bank accounts for the seizure of money along with the beneficial owners in these companies‟ bank accounts. 9.21 It is pointed by the Department out that the Petitioner has deliberately suppressed the fact that they were provided sufficient opportunity and time to furnish proof regarding the nature and source of funds; that the Companies‟ Directors, Mr. Pachauri and Mr. Jadaun, were themselves W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 18 of 54 unaware of the request letter seeking lifting of the restraints or even of the bank accounts. It is stated that at no point in time was the opportunity of hearing denied to the Petitioner companies. It is stated that “none of these facts have been placed on record by the Petitioner, thus, disentitling the Petitioner from any discretionary relief from this Hon'ble Court.” 9.22 With specific reference to the averments in para 5.7 of the Writ Petition (C) No. 1180 of 2017 in the para-wise reply contained in the Department‟s counter-affidavit, the Department has stated that the Petitioner had suppressed the fact that the request letters for lifting of restraint were written on behalf of the Directors of the Petitioner companies (Mr. Jadaun and Mr. Pachauri) who, under oath, denied having any knowledge of the said letters or even the existence of the bank accounts or of the Companies‟ activities. It is contended that the Petitioners having approached the Department under Section 132B of the Act for lifting of the restraint, the writ petition was not maintainable. According to the Department, since the Directors of the Companies had denied signing the GPA in favour of Mr. Praveen Pandey, the deponent of the affidavit filed in support of the writ petition, the very authenticity and veracity of the said writ petition was in question. 9.23 The Department filed an additional affidavit on 15[th] May, 2017 enclosing a copy of the order passed on 2[nd] May, 2017 in the case of PRDPL, 3[rd] May, 2017 in the case of EFPL, PFHIPL, LIIL, LERL, SSCPL and EFERL, and 4[th] May, 2017 in the case of LIPL under Section 132B of the Act by the Income Tax Officer. In each of these orders, the request for lifting of the restraint was declined since the source of funds had not been W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 19 of 54 9.23 The Department filed an additional affidavit on 15[th] May, 2017 enclosing a copy of the order passed on 2[nd] May, 2017 in the case of PRDPL, 3[rd] May, 2017 in the case of EFPL, PFHIPL, LIIL, LERL, SSCPL and EFERL, and 4[th] May, 2017 in the case of LIPL under Section 132B of the Act by the Income Tax Officer. In each of these orders, the request for lifting of the restraint was declined since the source of funds had not been W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 19 of 54 satisfactorily explained and therefore, the funds were unaccounted and unexplained. Thus, there being no outstanding tax liability or pending assessment was „immaterial‟. Each of these orders is a detailed one which need not be further set out in the present proceedings. Rejoinder of the Petitioners in W.P. (C) 1180 of 2017 10.1 In Writ Petition (C) No. 1180 of 2017, a rejoinder has been filed on 16[th]May, 2017 to the Department's counter-affidavit. The rejoinder is supported by the affidavit of Mr. Praveen Pandey giving his address as A-115, South City 2, Gurugram, Haryana. It is stated that the Department has “tried to build a lot of prejudice by attempting to link the companies with Mr. Mohnish Mukkar.”The rejoinder then proceeds to “see through the attempted creation of prejudice”. 10.2 The Petitioners in their rejoinder decide that offence is the best form of defence. In para 4c, the Petitioners state: “In the entire counter affidavit, almost the entire energy of the Department has been diverted to proving the role of Mr. Mohnish Mukkar in these companies. Without prejudice, and assuming that to be so, the question is then what? Merely because Mr. Mohnish Mukkar may be involved, does not entitle the Department to seize the bank accounts and bring the business to a standstill. The entire counter affidavit has been unable to suggest even a reasonable estimate of what the undisclosed income is, or what the assessable amount could be?" 10.3 It is claimed that the Petitioners being separate legal entities, the Department cannot seize their bank accounts without the authority of law. According to the Petitioners, the question whether the money lying in the bank account would constitute cash in terms of Section 132 of the Act and W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 20 of 54 whether it could be seized is an important question and the Department has no answer to it. It is submitted that Sections 132 and 132B of the Act do not confer power to seize the money lying in a bank account. It is submitted that a bank account, which is a debt owed by the bank towards the account holder, is an actionable claim in the hands of the account holder and cannot be seized. According to the Petitioners, the credit standing in a bank account is not 'money' or 'cash' but rather is a debt owed by the Bank to the customer. It is contended that there is no power under Section 132B to even issue a garnishee order. 10.4 It is stated that only under Section 281B of the Act can a restraint order can be passed by way of attachment, but then again, not for “actual realization.” Attachment does not mean that a direction can be passed directing the Bank to pay off the debt to a third party. Further, it is submitted that the manner of attachment and sale of a person‟s property has been provided in Part 2 of the II Schedule which is to be read with Rule 20 (which requires issuance of a warrant defining the sum to be realized, which is absent in the present case). In terms of Rule 26(1)(c)(i), a debt can be attached only by way of a written order prohibiting the creditor from recovering the debt and the debtor from making payment thereof until further orders of the Taxing recovery Officer. It is stated that there is no power for an actual debit to the bank account and realization of the debt by a third party such as the Department. 10.5 It is submitted by the Petitioners that under the second proviso to Section 132B(1) of the Act, the seizure cannot exist beyond 120 days. Since W.P.(C) 1180/2017& W.P.(C) No.2375/2017 Page 21 of 54 120 days have already lapsed from 11[th] January, 2017, there is no justification for continuing the restraint on the Petitioner‟s bank account. 10.6 The rejoinder then sets out the details of the (i) the nature of the activities of the Petitioner and the revenue stream; (ii) relevant facts leading to the deposit of cash and search and seizure of relevant documents; (iii) cooperation extended by Petitioners during and post search; and (iv) question of law regarding competence of the Department in directing RBL to issue DDs without an ascertained tax demand against the Petitioners. 10.7 While these details need not be discussed at this stage, it is significant that for the first time the Petitioners disclose that they can be divided into two groups of companies i.e., non-banking financial companies („NBFCs‟) and Special Purpose Vehicles („SPVs‟). It is disclosed again for the first time in para 1.2 that: "With the increase of the NPAs in the Banking Sector and in an effort to attract foreign capital to industries in need of financial and operational turnaround, in 2015 the Participation Group floated the SPVs under Emppel Fortitus Private Limited (the Emppel Group) for and on behalf of a foreign investor, Elfington Limited, with the intent of having a dedicated platform which would eventually be sold to Elfington Limited… The Emppel Group and the Participation were to receive sweat equity between December of 2016 and January of2017 from Elfington Limited in Elfington Limited, which was cancelled upon the discovery by Elfington Limited of the search & seizure action against Mr. Mohnish Mukkar." 10.8 In the rejoinder in paras 1.3 to 1.5, it is now stated as under: subsidiaries of Petitioner No. 5, whereas Petitioner No. 1 is a wholly owned subsidiary of Petitioner No. 4.The same is reflected from the financials and tax returns of the Petitioners for the last two financial years are annexed herewith as Annexure P-1. 1.4. That the Petitioner No. 5 is a company held by Elfington Holdings and Elfington Fincorp (hereinafter referred to as 'Trusts' under the Trusteeship of Independent Trustees and Executors Agency Pvt. Ltd.. These Trusts are registered in India under the provisions of the Indian Trusts Act,1888. The Petitioner No. 4 is held by Independent Trustees and Executors Agency Pvt. Ltd. Independent Trustees and Executors Agency Pvt. Ltd. is holding the assets on behalf Mstr Jeh Mohnish Mukkar, the s/o of Mr. Mohnish Mukkar under custody of Mrs. Kiran Shiv Mohan. This arrangement is on account of a family settlement or arrangement, which resulted in the relinquishment of rights by Mr. Mohnish Mukkar in his father's estate in favour of his son in 2006.Annexure P - 2. As a consequence of this settlement, upon the passing away of Mr. Mohnish Mukkar's father in 2015, who was a foreign resident, Mr. Mohnish Mukkar was notentitled to receive any benefits in India or Overseas. 1.5. In their activist business adventure of asset reconstruction and debt recovery the two groups i.e., NBFC and SPV, following the structure of an asset manager, are advised by Halcyon Asia Support Services Private Limited having its registered office at A-49, Mohan Industrial Co-operative Estate, Mathura Road, New Delhi. Mr. Mohnish Mukkar serves as the principal Strategic Advisor to Halcyon Asia Support Services Private Limited." 10.9 The rejoinder sets out elaborately the past business relationship with DHCL and the litigation involving it and seeks to explain the source of the cash of Rs. 15 crores in cash which was received by Petitioner No.4 (PFHIPL), out of which Rs. 13.43 crore